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The Importance of Whistleblowing in an Organization

By Matt Kelly

Few things are as important to a company as an engaged workforce that actually, you know, cares about the success and well-being of the business. Which means that a strong culture of internal reporting — more commonly known as whistleblowing — is crucial.

That idea can sometimes be a hard sell, to both senior executives and the workforce alike. The instinct is to fear whistleblowing, because whistleblower reports mean trouble. Every report is a potential problem that needs attention, and allegations of serious misconduct could cause enormous disruption to the business. Right?

Wrong. That view of whistleblowing is deeply flawed, and over the long term can leave an organization with more dysfunction than whatever the whistleblowers might report.

So today let’s explore the importance of whistleblowing to an organization, and how to put the fundamentals of a strong whistleblower program into place.

Why Whistleblowing Is Important for Public and Private Companies

Foremost, whistleblowing is important for businesses because it’s a regulatory requirement: you have a legal obligation to implement whistleblower channels and to protect whistleblowers when they raise a report of fraud, corruption, or other misconduct.

The importance of whistleblowing is true for all companies publicly traded in the United States, where whistleblower systems are required by laws such as the Sarbanes-Oxley Act and the Dodd-Frank Act. It’s also true for private businesses that work on government contracts. It’s true for businesses in Europe, where the European Union’s Whistleblower Protection Directive will be the law of the land by the end of 2021. (In many EU states, the law is already in force.)

Even without that regulatory imperative, however — a strong culture of internal reporting and whistleblower protection just makes good business sense. Even if your organization is one of the very few businesses out there not required to implement a whistleblower system, you should.

guide to whistleblower hotline and investigations

The Benefits of Whistleblowing

What are those benefits? Let’s consider some of them.

It’s ethical. Fundamentally, businesses have an ethical obligation to protect and support the employees working for them. That includes protecting employees who raise alarms about possible misconduct they see at the business.

It protects your company. Most employees want to speak up about potential trouble they see at their employer, and executives should embrace that impulse. That’s far better than the alternative, where employees couldn’t care less to tell you what’s going wrong at the business. A strong culture of whistleblowing helps to identify all manner of potential threats — including some threats, such as cybersecurity risks, that might not involve employee misconduct at all.

It minimizes risks and costs. Misconduct that continues for a long time will ultimately be more expensive to resolve. That’s true whether the misconduct is a criminal legal violation (say, bribing government officials), workplace harassment that might lead to civil lawsuits, or innocent errors that leave the business exposed to risk (poor cybersecurity defenses). When whistleblowers feel confident in speaking up, they’re helping the company to save money over the long term.

It prevents wrongdoing. When employees who want to commit misconduct know that other employees will call them out — and that management will then investigate the allegation — those first employees are less likely to try whatever wrongdoing they have in mind.

It provides more detailed insight into issues. It’s quite possible that management already knows it has some sort of problem in the business, but not an exact understanding of what’s wrong. Internal reports can provide the crucial evidence or examples that management needs to piece together the precise picture, and then develop the appropriate response.

It drives better communication and trust. Academics have found that businesses with a strong culture of internal reporting, and that get more internal reports than their peers, achieve better business outcomes generally: fewer lawsuits, smaller settlements when litigation does happen, more efficient operations, and even fewer negative headlines in the press.

That shouldn’t be a surprise, when you think about it. A company that gets lots of internal reports is a company where employees feel comfortable talking about problems, and getting those problems resolved. Over the long term, that business will inevitably gain a strategic edge over rivals that aren’t good at addressing internal problems.

Creating a Whistleblower Policy

While the importance of whistleblowing is evident, adopting a whistleblower policy is not something a business should rush into recklessly; a poor policy can cause just as much headache for a business as no policy at all. For example, your policy should address points including:

  • The types of issues that should be reported. Give examples, such as accounting fraud, contract fixing, corrupt payments, racial discrimination, sexual harassment, office bullying, theft of company data, and so forth — and always include a disclaimer of “and anything else that you believe to be misconduct.”
  • Employees’ duty to report misconduct. In most cases, you’ll want to specify that employees must report troubling misconduct they see, even if they are not direct victims of the behavior at issue.
  • The option to report anonymously. By providing an anonymous reporting channel, you give employees somehow implicated in misconduct but wanting to come clean a path to do that.
  • Protection from retaliation. Either as part of your general whistleblower policy, or as a company policy on workplace civility, stress that retaliating against coworkers for submitting a whistleblower report is strictly prohibited, and can result in disciplinary action including termination.

You also want your policy to explain exactly how employees can submit reports; walk them through the channels available to them, and the procedures for using those channels.

Why Employees Hesitate to Blow the Whistle

Employees hesitate to blow the whistle foremost because they fear retaliation if they speak up; or (in second place) because they believe the company won’t bother to take corrective action when they do try to speak up.

That’s it, really. Some other reasons that employees don’t speak up, according to research from Ethisphere, include “lack of anonymity in the reporting process” and “the person who committed the misconduct is a senior executive” — but those are just different ways of saying the employee doesn’t trust the company’s whistleblower process. That’s the obstacle that businesses need to overcome, if they want to reap all the benefits of a strong whistleblowing culture.

How to Promote a Whistleblowing Culture

Promoting a whistleblower culture is a subject worthy of its own complete post. In brief, however, the best way to promote a whistleblower culture is to tackle the two reasons we mentioned above about why employees hesitate to speak up. That means assuring the protection of whistleblowers and demonstrating that the company takes action when reports are submitted.

Assuring whistleblower protection is a mixture of technical measures, policies, and training. For example, you want to develop effective protocols for keeping reporters’ identifying data confidential, even as the substance of the complaint is handed from one investigator to another until the issue is resolved. You might also want to adopt a policy that certain types of complaints (say, sexual harassment) are always referred directly to an outside investigator, and that managers who receive such complaints and don’t follow the policy will be punished.

Demonstrating that the company takes action on complaints is more about executive communication. For example, compliance offices might want to include a “case of the month” in employee newsletters explaining how a complaint (with sensitive details anonymized) was handled. Or if whistleblower reports lead to adoption of a new policy, include that fact: “We’re adopting this policy thanks to employees who let us know about this problem, and we thank them for the help.”

That’s how management can foster trust within the organization. And from there, with those strong bonds of trust among employees, the business can achieve its objectives with more efficiency and respond to threats more skillfully.

That’s the competitive advantage, and it all begins with embracing a culture of whistleblowing rather than seeing whistleblowing as a threat.

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